First Home Buyers: Understanding the different mortgage types
The 7 Mortgage Types
There’s a lot more to loans than interest rates and fees. A low rate is important, but it is not everything. There are different types of loans and features that will make managing your mortgage easier. As your mortgage broker, we take the time to teach and advise you on the fundamentals so you can make an informed decision.
Variable
The interest rates go up and down depending on factors such as the official cash rate, market conditions and each lender’s decision. When the rate goes down, so do your minimum repayments. But when the rate goes up, your payments will too.
Fixed
The interest rate can be fixed for 1 to 5 years. Even if rates change, your repayments stay the same; this helps manage your household budget by knowing exactly what you’ll have to pay. You won’t benefit if interest rates drop, and there may be significant break costs to change the loan before the end of the fixed term.
Split Rate
One part is variable, the other is fixed; this allows you to enjoy the benefits of an interest rate drop, but also protects you from being affected fully if they rise.
Interest Only
You only pay the interest on your loan, but not the principal loan amount. Your repayments are less, but you still have the same level of debt at the end of the interest-only period. An interest-only loan will usually cost more over the term of the loan as you won’t start paying off the principal until after the end of the interest-only period.
Line of Credit
You can pay into and withdraw from this account as long as you keep up with the required repayments. You can have your income paid into this account to help pay off the mortgage sooner, but interest rates are often slightly higher.
Honeymoon Periods
Designed especially for first home buyers. Enjoy a lower interest rate for the first 6 to 12 months, after which the rate returns to the standard variable rate.
Low Doc
Popular with self-employed individuals because they require less documentation or proof of income; however, they usually have a higher rate of interest or need a larger deposit, or both.
Use our online calculators to work out which loan works best for you.
For more information, contact our Lending Specialist on (02) 4732 3844.
Why do I need a mortgage broker? Click here.
Looking for the perfect place to buy? Click here to explore your options.
Interested in ways to save or accrue money on or for your home? Click here to find out more.